ARTICLE...
Inflexible Friends
Consumers clearly value the flexibility of their credit cards and their use has risen dramatically in the past decade. There are now 63m cards in circulation and UK consumers currently owe about £54m them. However, the government is growing concerned that the way cards work is inherently balanced against consumers. Credit cards were the subject of 75% of the 24,300 complaints received on consumer credit issues by the FOS in 2008-09 – some 34% of all the banking and credit complaints they received last year.
Credit card companies are commercial entities and should expect to make a profit. But is it not acceptable to leave customers feeling exploited, disadvantaged, and baffled by complex terms and conditions. Many practices commonplace across the industry are simply unfair and cannot be allowed to continue.
Current practices have contributed to a significant minority of consumers carrying high levels of unsustainable debt with no prospect of paying it off in a reasonable time, if at all. One debt advice charity has said the average credit card holder they talk to owes nearly £15,000 and earns less than £30,000 a year. Such borrowing cannot be sustainable for either consumers or the credit industry.
Government has already taken action by introducing a ban on unsolicited credit card cheques. New legislation will come into force in June that requires credit and store card companies to properly explain to customers how their cards work. And the OFT is introducing guidance on what constitutes irresponsible lending. But more can, and must, be done to help redress the balance.
As part of the credit and store card consultation, which launched at the end of last month, we have published detailed suggestions for changes in the law. Our proposals focus on four key areas of concern: low minimum monthly repayments; charging different interest rates for spending, balance transfers and taking out cash; increasing credit limits without asking; and interest rates being increased with little explanation. We also want to address the complexity that stops people shopping around effectively.
As well as asking consumers what they think about the deal they get from their credit or store card company, we are consulting the firms themselves and asking them to justify their practices or accept the case for change. Constructive input from the industry will be essential if we are able to establish a regulatory framework that ensures that the commercial incentives of lenders are better aligned with the best interests of borrowers.
Original article, by Kevin Brennan, Minister for Consumer Affairs, BIS, courtesy of Credit Today.
